Stocks fell to their biggest-one day slide of the year as anxiety mounted over the potential for the Federal Reserve to pull back its stimulus efforts. Investors also fretted about a slowdown in the Chinese economy.

Worries about the Fed rattled across other markets, with gold dropping and yields on Treasury bonds marching to nearly two-year highs.

The Dow Jones Industrial Average shed 353.87 points, or 2.3%, to 14758.32, the biggest percentage drop since November 2012 for the blue chips and the largest point drop since November 2011.

Stocks began their decline at the opening bell, extending losses first kicked off after Fed Chairman Ben Bernanke reiterated Wednesday that the central bank could start winding down its $85-billion-a-month asset-purchase program later this year.

Traders said the selling Thursday was being led by short-term investors such as hedge funds and accelerated when the S&P 500 broke through the 1600 level. Some pointed to a single account selling a large number of futures contracts during the afternoon as fueling the decline. Others pointed to heavier-than-usual volume in exchange-traded funds as reflecting aggressive trading by hedge funds.

Despite the upbeat view for the economy, the prospect of the Fed curtailing the bond-buying efforts that have helped the Dow and S&P 500 hit records this year has sent jitters through the market. The yield on the 10-year Treasury note, which moves inversely to its price, reached 2.419%, its highest since August 2011.

Home builders were slammed over concerns that rising bond yields would translate into higher financing rates for buyers. PulteGroup,D.R. Horton and Lennar slumped. All 10 of the S&P 500's sectors fell more than 2%, and every Dow industrial traded in the red.

Gold was hit hard, as its appeal as a hedge against inflation and currency weakness faded. Gold slid 6.4%, to settle at $1,285.90 a troy ounce, dipping below $1,300 for the first time since September 2010.

Traders said the recent market volatility has made tactical traders and hedge funds more comfortable betting on declines in parts of the market. The Dow declined 206 points on Wednesday, and the two-day plunge was its first back-to-back drops of more than 200 points since November 2011.

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The Fed's signal that it could begin tapering this year sparked market sell-offs. But is the end of quantitative easing ultimately a good sign? Steve Russolillo joins MoneyBeat. Photo: Getty Images.

"In today's market, there's a little bit of fear, and some of these accounts smell blood and are getting a little more courage about getting in," said R.J. Grant, associate director of equity trading at KBW Inc.

Traders said losses were compounded by a week reading from China's manufacturing sector, which hit commodities like crude oil, down 2.9%, to settle at $95.40 a barrel. Late in the day, others said the market's declines accelerated once the S&P 500 broke below its 50-day moving average, a pivot price level where investors often sell.

Stocks also took a hit on the back of news reports suggesting the International Monetary Fund could halt payments to Greece.

Henry Mulholland, head of Americas equities at Bank of America, said long-term-oriented mutual-fund managers appeared to be standing by their stock positions, in some cases viewing the selloff as a chance to buy. Shorter-term traders have become more aggressive, willing in recent weeks to bet against high-dividend-paying stocks and real-estate investment trusts, sectors most sensitive to rising interest rates.

Asian markets fell in response to weak data from China and concerns about the Fed. China's Shanghai Composite Index lost 2.8%, falling to a six-month low after HSBC's China purchasing managers' index for June came in at a nine-month low. Japan's Nikkei Stock Average dropped 1.7%.

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